By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at MGIC Investment Corporation (NYSE:MTG), which is up 58%, over three years, soundly beating the market return of 15% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 27% , including dividends .

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for MGIC Investment

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, MGIC Investment achieved compound earnings per share growth of 23% per year. The average annual share price increase of 16% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 6.04 also reflects the negative sentiment around the stock.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that MGIC Investment has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of MGIC Investment, it has a TSR of 69% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that MGIC Investment shareholders have received a total shareholder return of 27% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 2 warning signs we've spotted with MGIC Investment (including 1 which doesn't sit too well with us) .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.